Degreed & Unemployable

Economists have noted with some surprise that the United States is recovering from the “Great Recession” considerably faster than Europe. Since the crisis was more or less manufactured in America, pundits assumed that we would take the longest to recover.

The secret is the striking rise in American labor productivity, which economists consider the magic formula for stable growth. Hourly worker output in the United States grew by a stunning 6.3 percent for the year through March 2010—the second fastest on record.

But look closer. That spectacular productivity gain was compounded from a 3.1 percent rise in total output and a 3 percent fall in employment. Workers are scared and working their tails off, even as corporate profits soar. So stock markets are up strongly over the year, and with free loans from the Federal Reserve, Wall Street bonuses are back at near-record levels. Hooray.

The conventional wisdom, of course, is that banks must heal first, and then the economy will shift into a normal employment recovery. But the new realities of labor markets may upset the standard scenarios. Claudia Goldin and Lawrence Katz are Harvard economists who have made a specialty of analyzing the relation between education, employment, and pay, using a large historical database that tracks those trends in great detail as far back as 1915. The 1940s, for example, were marked by very high demand for high-school graduates—new industries like aircraft builders needed literate production workers. That sharply narrowed the pay gap between high-school and college graduates. College graduates improved their position somewhat in the ’50s and ’60s, but the “college premium” shrank dramatically once again in the ’70s. That wasn’t because of a fall in the demand for college graduates; it was because of a big jump in supply—the sudden flood of boomer-generation college graduates. Despite the ups and downs, however, the long-run return to higher education has been positive and surprisingly stable. The impact of immigration turns out to be quite small.

The 1980s mark a kind of firebreak in the long-term trends. The wage premium to education accelerated sharply, and has continued to accelerate into the current period. But there are two distinct subperiods. In the ’80s, the jump in wage inequality was caused by a sharp jump in demand for more highly educated workers, driven by the explosion in computer technology. From about the ’90s, however, the continued high-wage premium for education is driven more by supply shortfalls, for there has been a dramatic slowdown in college completion rates. For the first time since the founding of the republic, that is, American education is not keeping pace with technology. Companies are paying top dollar for highly qualified people because they are so scarce.

This problem won’t be solved just by ramping up graduation rates. Why not? A clue lies in an odd depression in the middle of the national skill/pay profile. Unusually, both low-end and top-end workers have improved their position relative to the “middle-skill” worker. The improvement at the low end is probably because the harsh winnowing of jobs over the past couple decades has finally hit a wall. You can’t automate away, or outsource, hairdressers, gardeners, and home health aides, so their position has stabilized and even improved a bit. At the other extreme, of course, the highly educated continue to do very well.

But the middle-skill person, the mere college graduate, has been losing ground. In times past, many so-called middle managers were devoted to tasks like collecting data and reformatting it into management reports, or supervising the people who did. They needed to be literate and numerate, diligent and reliable, but not especially technical. The information revolution has wiped out huge swaths of such jobs. The average white-collar worker may now be in the same position as the highly paid unionized factory operative of a decade or so ago.

In other words, just finishing college may no longer cut it in the job market. So jobs for highly qualified people are going begging, both because college completion rates are dropping, and because too many recent graduates don’t have the required skill sets anyway. Hence the slow job recovery after the 2002 recession, and the even slower one now.

The breathtaking challenge is to ratchet up the quality of the average college degree and to expand the educational pool. Doing so will require national action and extraordinary perseverance. Given the country’s current incapacities, one must be pessimistic.

Comments

The entire exercise is about killing off the unions, eliminating benefits and minimum wage scales, and constructing an economy of cheap and abundant labor who will accept any wage for their work. Now the guns are aimed at public employees, the last bastion of decent pay and benefits. Next, will be all junior level positions in management and white collar work, reduced to 'at will' status with no job security and hence no company loyalty deserved. In this dog eat dog world, only those with inherited wealth or priceless talents (such as pro ball players) will receive genuine compensation. The rest of the grunts will just have to survive on the crumbs that fall from their masters' tables.

The multinational corporation -- whose only business is maximizing profit by any means whatsoever, and with few real ties to any particular place or nation -- is the real culprit behind these 'trends'. We have all seen stories of American workers being asked to train foreign workers so that the latter can take the jobs of the former. Only when corporations are made to pay for their own collateral damage -- the harm which comes from their pursuit of profits regardless of the local cost -- will this juggernaut be stopped. Why is Detroit (city, not metro area) a virtual ghost town? Who made that happen?

The constant push toward automation of jobs also raises questions like: How can the productivity of corporations be taxed so as to create other kinds of jobs for displaced or never-hired workers. At this moment, while Wall Street bonuses have almost returned to 'normal', home health care workers are having their wages reduced, or are being fired even as the frail aging population grows. We need a new framework for thinking about economics in a world filled with new technologies, so that some semblance of humanity can be restored to work.